Amongst all those bad news of global economic crisis, recession, high inflation, etc., the year 2009 was the best in many years for borrowers as interest rates had come down.
This year the car and home loan rates had come down to as low as 8 per cent, the lowest in six years brought cheers to borrowers.
The country's largest lender State Bank of India launched its special home loan scheme in February, under it offered loans at eight per cent and by the end of the year many other big players like HDFC and ICICI Bank followed the suit.
In all this the borrower made merry.
Some of the banks reduced the car loan rates to 8% from as high as 14%. But the investors suffered a rude shock when banks started reducing deposit rates in a phased manner by 400-600 basis points, and the banks continued reducing rates till November.
However Reserve Bank (RBI) kept its policy rates to low level in order to boost the economy.
The rate at which banks borrow from RBI in exchange of government bonds is known as repo rate was low at 4.75 per cent, reverse-repo at which the apex bank accepts deposits from banks at 3.25 per cent and Cash Reserve Ratio, the portion of cash banks invest with the Reserve Bank, at 5 per cent.
Bank of Baroda chairman and managing director M D Mallya said, "The year 2009 was quite eventful for banks and it showed the resilience of the system to a huge crisis in related markets."
"As we move ahead, when we shun the impact of slowdown, I expect the bank credit growth to revive considerably, which may result in upward movement of lending rates as well."
On the other hand the central bank is under pressure to tighten monetary stance due to increasing inflation, up till now it has been dovish.
The bankers say if RBI increases cash reserve ratio, it can help in clearing up the excess liquidity, after this RBI can start raising repo rate and reverse repo rate to come out of the easy money regime.
Currently, there is surplus liquidity in the system. RBI can start the process of mopping up liquidity by hiking CRR by around 25-50 basis points in January, Jammu & Kashmir Bank chairman Haseeb Drabu said.
This measure taken by RBI will automatically indicate to hike in interest rates in the system.
Also, the discussion on the consolidation in the public sector banks started this year as Finance Ministry held meetings with leading PSU banks to explore the possibility of creating a few large banks by merging and acquiring small banks.
In November Additional Secretary G C Chaturvedi called a meeting which was attended by the heads of five major PSU banks - Punjab National Bank, Bank of Baroda, Canara Bank, Union Bank of India and Bank of India.
According to bankers in 2010 the consolidation talks in the Indian banking system will gain momentum, both in public and private sectors, as it the competition in the global banking space is going to increase.
RBI in order to strengthen the banking system has proposed to increase provision coverage for the banks which should not be less than 70 per cent by September 2010. Increase in provision coverage can lower profits (mainly for SBI and ICICI Bank) in the next three-four quarters, an analyst said.
The Reserve Bank panel has suggested ensuring transparency, banks should offer interest rates on loans linked to a defined minimum base rate instead of the present benchmark prime lending rate (BPLR).
The RBI stated linking lending rates to base rate will raise concerns relating to growing sub-BPLR portfolio of banks.
Thus as per this proposal all the banks will have to declare a base rate and fix interest rates over that depending upon the credit profile of the borrower and repayment period.
Thursday, December 31, 2009
Monday, December 7, 2009
State Bank of Mysore has extended two home loan schemes till March 31
Following the suit of big players State Bank of Mysore has also extended its two home loan schemes till March 31, 2010. Currently bank is offering fixed rate of 8% for the first year under its two schemes - “Easy Home Loan” and “Advantage Home Loan”.
However, from this month bank will be charging processing fee, a source in the bank’s personal and services banking department said. The scheme was set to expire on November 30.
The sources said, “All other banks have extended their schemes and we have also extended our festival offer. We are witnessing steady demand for home loans as buyers are now looking at investing their funds in buying property”.
However, from this month bank will be charging processing fee, a source in the bank’s personal and services banking department said. The scheme was set to expire on November 30.
The sources said, “All other banks have extended their schemes and we have also extended our festival offer. We are witnessing steady demand for home loans as buyers are now looking at investing their funds in buying property”.
Thursday, December 3, 2009
Borrowers get best rate option on home loans
On Tuesday HDFC announced its offer of dual-rate on home loan, thus the aspiring home buyers are getting good options.
Before the State Bank of India (SBI) offer of 8 per cent on home loan was termed as ‘a gimmick’ by the Housing Development Finance Corporation (HDFC) has entered the dual-rate bandwagon with its ‘festive’ offer of 8.25 per cent for home buyers.
The HDFC bank loan offer will be valid till January 31, 2010, is expected to offer more options to the potential home buyers. Besides HDFC, there are number of players offering attractive home loan rates.
According to the figures, Bank of Rajasthan (BoR) is offering the lowest rate of 7.5% per annum which is 50 basis points less than the SBI offer. The Development Credit Bank is giving offer of 7.95% for the first year. The other players are such as Axis Bank Power Plus, State Bank of Bikaner and Jaipur and Canara Bank are offering 8 per cent rate for the first year.
According to industry experts for home buyers the first year rate should not be most important factor because the normally the home loan tenure is of 15 to 20 years. Therefore, if the low rate is offered in the first few years and later on increases, the home buyers will find themselves under serious financial problem.
SBI is offering 8 per cent for the first year and 8.5 per cent for the second and third year subsequently the rate will be 2.75 per cent less than its benchmark rate or the State Bank Advance Rate from the fourth year onwards.
On the other hand HDFC’s dual-rate offer is equivalent at 8.25 per cent till March 2012, after that at loan will be offered at floating rate which will be 500 basis points below their benchmark.
Suppose you choose to take loan of Rs 25 lakh for 20 years from BoR, the EMI (equated monthly installment) for the first year will amount to Rs 20,140. While for a similar loan amount from SBI and HDFC the first year monthly EMI will amount to Rs 20,911 and Rs 21,302, respectively.
Thus by taking loan from BoR you will save around Rs 771 per month (Rs 9,252 a year) and Rs 1,162 per month (Rs 13,944 a year) for SBI and HDFC, respectively. The figures are not quite significant as the home loan is for a long tenure. Moreover in the second and third year, HDFC (till March 2012) will charge 8.25 per cent, while BoR and SBI are offering 8.5 per cent for the same.
Hence before taking the final decision on best rate, one has to look at the costs such as processing fee. BoR charge 0.5 per cent to 1 per cent processing fee of the loan amount whereas, HDFC charge 0.5 per cent and SBI nil.
While a person takes a loan of Rs 25-lakh, then the processing fee charge by the BoR will amount to Rs 12,500 to Rs 25,000. However on loan taken from HDFC the fee will be Rs 12,500, and for SBI, the cost is zero. Thus the person will not save anything in the first year if the loan is taken from BoR due to higher costs.
Subsequently from the fourth year, the applicable floating rate of the bank’s existing cost of funds and the benchmark rate will be charged. Although it is not easy to predict the future rate of interest but to get some idea about the EMI one can use current benchmark rates and calculate the average rate of interest per year.
After the calculation the figures will be something like this. BoR is offering the best rate at 8.53 per cent, followed by HDFC and Axis Bank at 8.63 and 8.65 per cent, respectively. At 8.76 per cent, SBI’s rate comes fourth.
Therefore the potential home buyers get a lot of options. At present they can pay low EMIs and pay higher when their incomes improve after three years.
Moreover it also provides good option for the borrowers who want to shift their high-cost on the existing loans to cheaper options. Most of the existing borrowers are paying excess of 10 per cent on their loans, so for them it is the right to shift. But they have to work out the cost of shifting as it involves a prepayment penalty.
Friday, November 6, 2009
SBI clarifies: no plans to withdraw special home loan scheme
Almost all the news paper published news that State Bank of India (SBI) might withdraw its special home loan schemes. Country’s largest lender SBI sources has clarified that it has no plans to revise its most popular home loan scheme under which it is charging 8 per cent interest for the first year.
The bank source has issued the clarification in view of reports published in various newspapers stating SBI might withdraw the scheme from November 7.
The bank added, “News reports have been appearing in various newspapers across the country indicating that SBI plans to withdraw its special home loan schemes carrying an interest rate of 8 per cent for the first year of the repayment period. SBI has no immediate plans to revise interest rates on home loans”.
Bank had launched the scheme in February after which other banks due to increasing pressure followed the suite. SBI is giving the same offer for auto loans too.
Earlier when SBI announced the scheme in February, the offer was valid till April-end; later on the scheme was extended till September. The bank has further extended the scheme but has not set any deadline for its closure.
The bank source has issued the clarification in view of reports published in various newspapers stating SBI might withdraw the scheme from November 7.
The bank added, “News reports have been appearing in various newspapers across the country indicating that SBI plans to withdraw its special home loan schemes carrying an interest rate of 8 per cent for the first year of the repayment period. SBI has no immediate plans to revise interest rates on home loans”.
Bank had launched the scheme in February after which other banks due to increasing pressure followed the suite. SBI is giving the same offer for auto loans too.
Earlier when SBI announced the scheme in February, the offer was valid till April-end; later on the scheme was extended till September. The bank has further extended the scheme but has not set any deadline for its closure.
Monday, October 26, 2009
Central Bank restructuring home finance arm before selling
Central Bank of India, Mumbai-based public sector lender is in the process of restructuring its home finance subsidiary, Centbank Home Finance, for this the bank has appointed Ernst and Young for advice on restructuring and valuation. The bank has an aim to raise the valuation of the mortgage company before selling it.
In this process bank will be buying the shares of other shareholders in the home finance arm. According to Central Bank executive bank has already started negotiating with other shareholders. The bank plans to sell home finance arm over the next two years.
In the home finance arm Central Bank is having a 59.5 per cent stake in the subsidiary while UTI and National Housing Bank have 16 per cent each. Hudco is holding the remaining 8.5 per cent stakes. Central Bank has nominated five directors on the board of Centbank Home Finance, while Hudco, NHB and UTI have nominated one director each.
At present the home loan company capital base amount to Rs 20 crore while the net worth is Rs 48 crore. During 2008-09, the mortgage company's net profit was Rs 3.18 crore. By the end of March its gross outstanding loans stood at Rs 257.88 crore.
In the current financial year, Centbank Home Finance has decided to disburse around Rs 150 crore, which will be twice the amount sanctioned last year. It will be also increasing the average loan amount to Rs 10-15 lakh from the present level of Rs 3 lakh.
Recently Central Bank gave a credit line of Rs 100 crore in order to increase the profitability of Centbank Home which would partly be used to repay the entire debt of NHB.
As a restructuring exercise the head office of Centbank Home office has been shifted to Mumbai from Bhopal.
Several public sector banks who has opened separate home loan arm have exited or are in the process of exiting the business to avoid duplication ad they are already offering home loans.
Earlier in May, Punjab National Bank had sold 26 per cent in its home loan arm, PNB Housing Finance, to Dawnay Day, with an option to sell another 25 per cent. IDBI Bank is also in the process of selling its home loan subsidiary.
In this process bank will be buying the shares of other shareholders in the home finance arm. According to Central Bank executive bank has already started negotiating with other shareholders. The bank plans to sell home finance arm over the next two years.
In the home finance arm Central Bank is having a 59.5 per cent stake in the subsidiary while UTI and National Housing Bank have 16 per cent each. Hudco is holding the remaining 8.5 per cent stakes. Central Bank has nominated five directors on the board of Centbank Home Finance, while Hudco, NHB and UTI have nominated one director each.
At present the home loan company capital base amount to Rs 20 crore while the net worth is Rs 48 crore. During 2008-09, the mortgage company's net profit was Rs 3.18 crore. By the end of March its gross outstanding loans stood at Rs 257.88 crore.
In the current financial year, Centbank Home Finance has decided to disburse around Rs 150 crore, which will be twice the amount sanctioned last year. It will be also increasing the average loan amount to Rs 10-15 lakh from the present level of Rs 3 lakh.
Recently Central Bank gave a credit line of Rs 100 crore in order to increase the profitability of Centbank Home which would partly be used to repay the entire debt of NHB.
As a restructuring exercise the head office of Centbank Home office has been shifted to Mumbai from Bhopal.
Several public sector banks who has opened separate home loan arm have exited or are in the process of exiting the business to avoid duplication ad they are already offering home loans.
Earlier in May, Punjab National Bank had sold 26 per cent in its home loan arm, PNB Housing Finance, to Dawnay Day, with an option to sell another 25 per cent. IDBI Bank is also in the process of selling its home loan subsidiary.
Thursday, August 13, 2009
Stimulus package offered to PSBs by govt. boosted housing loan demand
The benefits of government’s first initiative taken to boost the realty sector in the form of special home loan package are visible. As per the latest data released by RBI there has been a growth of 353% i.e. four times growth in housing loan distribution during three months ended May 2009 in comparison to the average 53% decline in the previous three quarters.
Bank of India executive director M Narendra said, “It was a right step to introduce the stimulus package. This helped to ease out the risk of interest rate volatility for at least the initial years”. He added unless there is growth in housing, real estate and construction sectors the core sectors like steel and cement can not grow.
In December 2008 the home loan rates were around 11% therefore to boost realty sector special housing loan scheme was announced. Under this the public sector banks were given a special incentive package to offer home loans at low interest rate.
Under the scheme housing loans of up to Rs 5 lakh offered at 8.5% interest rate and for Rs 5-20 lakh the banks charged 9.25% for the first five years. Although this scheme was up till June 30, 2009. The scheme received gentle response in the initial stage. Later on in the month of April and May the demand started picking up due to which there was a growth of Rs 3,138 crore in housing loans during three months ended May 22 as against to Rs 693 crore in first three months of the scheme.
For instance Bank of India residential mortgage year-on-year (YoY) basis increased to 31% at the end of June 2009, as compared to 15% growth at the end of March 2009. Other banks also witnessed the similar growth.
IC Shetty, divisional manager of Canara Bank stated, “The response to the scheme showed the impending demand in the sector. April May and June saw the maximum loan applications”. The measure taken by the government showed the positive response of boosting housing demand which helped the homebuyers who were unable to fulfill desire of owning a house due to skyrocketing prices.
The low interest rates scheme not only attracted aspirant home buyers but also helped the developers in generating revenues. During August’08-March’09, hardly any houses were being sold but by April the demand picked up so much that almost 3-4 flats were being sold every week.
Bank of India executive director M Narendra said, “It was a right step to introduce the stimulus package. This helped to ease out the risk of interest rate volatility for at least the initial years”. He added unless there is growth in housing, real estate and construction sectors the core sectors like steel and cement can not grow.
In December 2008 the home loan rates were around 11% therefore to boost realty sector special housing loan scheme was announced. Under this the public sector banks were given a special incentive package to offer home loans at low interest rate.
Under the scheme housing loans of up to Rs 5 lakh offered at 8.5% interest rate and for Rs 5-20 lakh the banks charged 9.25% for the first five years. Although this scheme was up till June 30, 2009. The scheme received gentle response in the initial stage. Later on in the month of April and May the demand started picking up due to which there was a growth of Rs 3,138 crore in housing loans during three months ended May 22 as against to Rs 693 crore in first three months of the scheme.
For instance Bank of India residential mortgage year-on-year (YoY) basis increased to 31% at the end of June 2009, as compared to 15% growth at the end of March 2009. Other banks also witnessed the similar growth.
IC Shetty, divisional manager of Canara Bank stated, “The response to the scheme showed the impending demand in the sector. April May and June saw the maximum loan applications”. The measure taken by the government showed the positive response of boosting housing demand which helped the homebuyers who were unable to fulfill desire of owning a house due to skyrocketing prices.
The low interest rates scheme not only attracted aspirant home buyers but also helped the developers in generating revenues. During August’08-March’09, hardly any houses were being sold but by April the demand picked up so much that almost 3-4 flats were being sold every week.
Thursday, August 6, 2009
Can Fin Homes Ltd reduced home loan rates for fresh loans
Canara Bank subsidiary Can Fin Homes Ltd (CFHL), has reduced the home loan rates for fresh individual housing loans. The new rates have come into effect from 1 August, 2009.
According to CFHL release the company, in the current financial year has reduced the rates of second time.
As per revised interest rates on fresh loans rate will be 8.7 per cent for loans up to Rs 20 lakh, 9.00 per cent for loans above Rs 20 lakh to Rs 30 lakh and 9.75 per cent for loans above Rs 30 lakh.
The rates have been reduced under variable interest rate scheme and will be applicable for all repayment periods
For the current fiscal the company has set a target of disbursing loan of Rs 550 crore as against Rs 300 crore as of March 2009 at the growth rate of 83 per cent, the release stated.
According to CFHL release the company, in the current financial year has reduced the rates of second time.
As per revised interest rates on fresh loans rate will be 8.7 per cent for loans up to Rs 20 lakh, 9.00 per cent for loans above Rs 20 lakh to Rs 30 lakh and 9.75 per cent for loans above Rs 30 lakh.
The rates have been reduced under variable interest rate scheme and will be applicable for all repayment periods
For the current fiscal the company has set a target of disbursing loan of Rs 550 crore as against Rs 300 crore as of March 2009 at the growth rate of 83 per cent, the release stated.
Friday, July 31, 2009
FM says: Interest subsidy on home loans to be offered through banks
The interest rate subsidy for mid-segment housing loan is basically for the customers belonging to lower middle to middle income groups. Finance minister Pranab Mukherjee informed that the interest subsidy will be passed to the customers through commercial banks and housing companies which are registered with the National Housing Bank.
He added to boost the housing sector tax holiday benefit will be provided to it on the profits earned from projects which were approved between April 1, 2007 and March 31, 2008, if these projects are completed on or before March 31, 2012.
He said, ‘‘I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector’’.
On Monday while speaking on the finance bill Congress MP from Mumbai (North) Sanjay Nirupam pointed out that 42.4% of Maharashtra’s population is living in urban cities and in last few years there has been increase in the migration to cities. Moreover the home loan rates are increasing sharply therefore it would be right to provide relief to the borrowers. Also providing an interest subsidy and a targeted tax break can give some support to the stranded real estate sector.
However on its part government has asked the real estate developers to lower prices so that housing becomes more affordable for the aam aadmi.
The housing loan subsidy is attached with a slew of other concessions such as exempting road repairs and maintenance from the sphere of service tax on the other hand the sunset clause for tax holidays for industrial parks has been extended for two years up to March 2011 to increase growth in infrastructure. However the FM made it clear that the service tax on new services and any alteration in the existing services announced in the Budget 2009-2010 will come into effect from September 1, 2009.
Renu Sud Karnad, Joint MD, HDFC Ltd stated, “It’s a welcome step from the government. The decision is sure to improve loan eligibility and affordability of a large section of the Indian middle class. It will also lead to increased activity with regard to real estate in the affordable housing segment which in turn will create employment’’.
He added to boost the housing sector tax holiday benefit will be provided to it on the profits earned from projects which were approved between April 1, 2007 and March 31, 2008, if these projects are completed on or before March 31, 2012.
He said, ‘‘I expect the developers to pass on the benefit of tax holiday to home buyers by appropriately reducing their prices. I am sure that both the expenditure and tax-foregone initiatives would provide relief to a large segment of prospective home owners and help revive the real estate sector’’.
On Monday while speaking on the finance bill Congress MP from Mumbai (North) Sanjay Nirupam pointed out that 42.4% of Maharashtra’s population is living in urban cities and in last few years there has been increase in the migration to cities. Moreover the home loan rates are increasing sharply therefore it would be right to provide relief to the borrowers. Also providing an interest subsidy and a targeted tax break can give some support to the stranded real estate sector.
However on its part government has asked the real estate developers to lower prices so that housing becomes more affordable for the aam aadmi.
The housing loan subsidy is attached with a slew of other concessions such as exempting road repairs and maintenance from the sphere of service tax on the other hand the sunset clause for tax holidays for industrial parks has been extended for two years up to March 2011 to increase growth in infrastructure. However the FM made it clear that the service tax on new services and any alteration in the existing services announced in the Budget 2009-2010 will come into effect from September 1, 2009.
Renu Sud Karnad, Joint MD, HDFC Ltd stated, “It’s a welcome step from the government. The decision is sure to improve loan eligibility and affordability of a large section of the Indian middle class. It will also lead to increased activity with regard to real estate in the affordable housing segment which in turn will create employment’’.
Thursday, July 9, 2009
Bankers say: “extremely unfortunate if the developers were to increase the home prices at this juncture”
Slowly the real estate market is coming up as banks have reduced lending rates and especially in home loan segment most of the banks are offering 8% interest for the first year therefore some of the big developers have started increasing prices. But on Tuesday leading bankers have warned the real estate developers against raising residential prices as any such move at this point can bring halt in the recovery market.
Mr Deepak Parekh, Chairman, HDFC, stated, “Certain top-rung developers have already started increasing prices, especially in mid-income projects, following the recent pick up in sales. Besides, with liquidity no longer a constraint, certain developers are seeking once again to increase their margins”.He stated that just now the real estate market has begun correcting itself and it will be “extremely unfortunate if the developers were to increase the home prices at this juncture.”
While speaking at Habitat Business Forum event organized by FICCI, Mr Parekh, expressed his uncertainty on whether existing developers might stay committed to affordable housing segment.
Mr S. Sridhar, Chairman and Managing Director, Central Bank of India, expressed the similar views. He said that it will be “short-sighted” in case the players think of raising prices thinking that the demand is coming back into the market.
According to Mr Sridh, “It is difficult to generalize but as a whole there is some more scope for downward adjustment in prices, or in certain places it should plateau. That will stimulate the demand. If the real estate players revise the prices upwards, it will stall the recovery process”.
He pointed out however, the demand for housing loans has picked up among the banks.
Mr Deepak Parekh, Chairman, HDFC, stated, “Certain top-rung developers have already started increasing prices, especially in mid-income projects, following the recent pick up in sales. Besides, with liquidity no longer a constraint, certain developers are seeking once again to increase their margins”.He stated that just now the real estate market has begun correcting itself and it will be “extremely unfortunate if the developers were to increase the home prices at this juncture.”
While speaking at Habitat Business Forum event organized by FICCI, Mr Parekh, expressed his uncertainty on whether existing developers might stay committed to affordable housing segment.
Mr S. Sridhar, Chairman and Managing Director, Central Bank of India, expressed the similar views. He said that it will be “short-sighted” in case the players think of raising prices thinking that the demand is coming back into the market.
According to Mr Sridh, “It is difficult to generalize but as a whole there is some more scope for downward adjustment in prices, or in certain places it should plateau. That will stimulate the demand. If the real estate players revise the prices upwards, it will stall the recovery process”.
He pointed out however, the demand for housing loans has picked up among the banks.
Friday, July 3, 2009
LIC Housing Finance launched new scheme for new customers
People who are planning to take home loan there is good news LIC Housing Finance has reduced interest rates for new customer.
A new scheme has been launched by LIC housing finance a three-year 'Fix-o-Floaty' scheme, under which the customers will get flexibility as well as protection against the volatilities of interest rate movement.
A press release issued by LIC stated in this scheme, the borrowers will have to pay a fixed interest rate of 8.9 per cent for loans up to Rs 75 lakh and 9.5 per cent for loans above of Rs 75 lakh for a period of three-years.
The release added after that, a floating rate prevailing at the end of three-years will have to be paid. This scheme will be effective from today.
The release added any time during the three-year initial period, the customer can opt for shifting to the floating interest rate without paying any additional charges.
The home loan borrowers who opt for floating rates ab-initio, the special offer rates for new customers for loans up to Rs 75 lakh will be 8.50 per cent, instead of 8.75 per cent to 9.75 per cent. While for loans above Rs 75 lakh, the rates will be 9.50 per cent as against 10.25 per cent earlier.
A new scheme has been launched by LIC housing finance a three-year 'Fix-o-Floaty' scheme, under which the customers will get flexibility as well as protection against the volatilities of interest rate movement.
A press release issued by LIC stated in this scheme, the borrowers will have to pay a fixed interest rate of 8.9 per cent for loans up to Rs 75 lakh and 9.5 per cent for loans above of Rs 75 lakh for a period of three-years.
The release added after that, a floating rate prevailing at the end of three-years will have to be paid. This scheme will be effective from today.
The release added any time during the three-year initial period, the customer can opt for shifting to the floating interest rate without paying any additional charges.
The home loan borrowers who opt for floating rates ab-initio, the special offer rates for new customers for loans up to Rs 75 lakh will be 8.50 per cent, instead of 8.75 per cent to 9.75 per cent. While for loans above Rs 75 lakh, the rates will be 9.50 per cent as against 10.25 per cent earlier.
Thursday, July 2, 2009
Home loan borrowers should ensure to get insurance policy papers
In case you have taken home loan and bank has insisted you to take an insurance cover for the outstanding loan amount, have you got the policy documents from the bank subsequently?
Most of the home loan borrowers are not aware of this or assume that the bank by itself has done it and they would not have to worry.
Although it is the duty of the bank to submit the application immediately to the insurance company should get the policy documents and hand over the same to the borrowers, but it has been noticed that some banks fail to submit the application and the policies are never taken.
Mr M. Govinda Rao, a retired bank official, quoted some instances of failure on the part of some banks in submitting the proposal. “While an additional amount is added to the home loan sanctioned amount, presumably towards insurance premium, the same is either not sent with the proposal form to the insurance company or sent very late.”
On enquiring from the District Consumer Redressal Forum President, Mr S.A. Sreeramulu, told about 6-7 cases related to deficiency in service by banks and insurance companies (with respect to housing loans) have been filed out of which he had passed orders in respect of three cases in favor of the borrowers. He added the remaining three are pending before the court.
He informed, “In one reference, the borrower had died before the bank submitted the policy proposal, almost a year after the date of sanction of the loan. The claim could not therefore be made because the policy had not materialized at the particular time. There have also been instances of banks failing to handover the policy to the borrower after receiving it from the insurance company, leaving the legal heirs in the dark about any such policy”.
Coimbatore Consumer Cause Secretary, Mr K. Kathirmathiyon explained, “Borrowers should ensure submission of the proposal form to the insurance company without delay and should demand the policy from the bank / insurance company and keep the papers along with their bank loan documents”.
He stated, “The borrower should inform his family members about the insurance policy and banks should take proactive steps in submitting the claim proposal to the insurance company in the event of the death of the borrower for liquidation of the loan”.
Mr Govinda Rao pointed out, “Some banks offer ‘Free Accident Insurance’ cover on housing loan. Unfortunately, most borrowers are not even aware of such a policy. And, in banks, except for the operating officials, many are not aware of it”.
He advised, “Borrowers should enquire about such freebies at the time of sanction of the loan and demand that it be made available to them. Further, the bank should ensure that the policy paper regarding the free accident cover is handed over to the borrower immediately on sanction of the loan and make a note of it in the sanction letter”.
“Insurance polices are normally issued against a particular loan account. In the event of a change in the account number, for whatever reason, the borrower should ensure that the cover is available to the new account also.
He should not presume the extension of the cover to the new account as automatic. Else, in the event of a claim, the insurance company might refuse to settle the claim contesting that the two accounts are different.”
Most of the home loan borrowers are not aware of this or assume that the bank by itself has done it and they would not have to worry.
Although it is the duty of the bank to submit the application immediately to the insurance company should get the policy documents and hand over the same to the borrowers, but it has been noticed that some banks fail to submit the application and the policies are never taken.
Mr M. Govinda Rao, a retired bank official, quoted some instances of failure on the part of some banks in submitting the proposal. “While an additional amount is added to the home loan sanctioned amount, presumably towards insurance premium, the same is either not sent with the proposal form to the insurance company or sent very late.”
On enquiring from the District Consumer Redressal Forum President, Mr S.A. Sreeramulu, told about 6-7 cases related to deficiency in service by banks and insurance companies (with respect to housing loans) have been filed out of which he had passed orders in respect of three cases in favor of the borrowers. He added the remaining three are pending before the court.
He informed, “In one reference, the borrower had died before the bank submitted the policy proposal, almost a year after the date of sanction of the loan. The claim could not therefore be made because the policy had not materialized at the particular time. There have also been instances of banks failing to handover the policy to the borrower after receiving it from the insurance company, leaving the legal heirs in the dark about any such policy”.
Coimbatore Consumer Cause Secretary, Mr K. Kathirmathiyon explained, “Borrowers should ensure submission of the proposal form to the insurance company without delay and should demand the policy from the bank / insurance company and keep the papers along with their bank loan documents”.
He stated, “The borrower should inform his family members about the insurance policy and banks should take proactive steps in submitting the claim proposal to the insurance company in the event of the death of the borrower for liquidation of the loan”.
Mr Govinda Rao pointed out, “Some banks offer ‘Free Accident Insurance’ cover on housing loan. Unfortunately, most borrowers are not even aware of such a policy. And, in banks, except for the operating officials, many are not aware of it”.
He advised, “Borrowers should enquire about such freebies at the time of sanction of the loan and demand that it be made available to them. Further, the bank should ensure that the policy paper regarding the free accident cover is handed over to the borrower immediately on sanction of the loan and make a note of it in the sanction letter”.
“Insurance polices are normally issued against a particular loan account. In the event of a change in the account number, for whatever reason, the borrower should ensure that the cover is available to the new account also.
He should not presume the extension of the cover to the new account as automatic. Else, in the event of a claim, the insurance company might refuse to settle the claim contesting that the two accounts are different.”
Wednesday, May 13, 2009
Banks fail to find buyers for attached properties
The number of attached immovable properties is growing fast but banks are finding difficulty to find buyers for these properties. The attached properties are the one whose owners fail to pay the dues/EMIs therefore banks attach such properties from time to time.
According to bank sources every year in Delhi and NCR region more than 125 properties are attached. It is believed this figure might increase as the world is facing a massive market downturn.
Earlier three months ago outside a big kothi in West Patel Nagar a small board used to hang on the gate inviting attention of almost all the passers-by. On the board in bold letters following slogan was written, "This property is attached by the ... bank. Trespassers will be prosecuted."
With the introduction of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) banks have got plenty of powers to take physical possession of properties that are financed by them. In case the borrowers become regular offenders and do not pay EMIs to the bank, along with interest for six months in a row, then banks act speedily.
In case the borrower continues to be the defaulter bank serves a show cause notice to pay the money within 30 days. Sunder Khatri, legal expert on property matters said if the borrower doesn’t act within next 15 days, the bank seals the property. Khatri told after the fixed time banks inform the police station that a particular owner of the property has failed to pay the loan amount to the bank, therefore they will seal his property.
A senior official of SBI told that when bank officials seal any property, they make sure that the local police officials are also present there. Although due to courtesy of securitization acts, banks are able to attach properties in certain circumstances, but the problem starts when banks try to dispose of the property in order to recover their money with interest.
According to VK Suri, an expert on banking affairs as banks have to sell the attached properties and the payment is to done in white money, more often than not, buyers evade buying such properties. More over banks accept payment only through a cheque, thus the new buyer has to pay a huge stamp duty. This creates a big difficulty for the new buyer.
Sunil Jindal, director of SVP group, says that in our country there is no controller for the realty sector so the issue of black money in this business cannot be settled and solved. Jindal added that though everybody knows that black money has a significant role in realty business, till date the government has not taken any corrective measures. In case the government takes some steps to settle the issue of black money, banks will start getting buyers for the attached properties.
A banker acknowledged due to the white money payment provision, people do not take interest in buying attached properties. Suri said therefore banks are left with very few options to deal with this situation, he added, "Attached properties only add to their growing list of non-performing assets."
Therefore, public sector companies buy the attached properties. As the companies prefer to make payments through cheques thus, they buy these properties. But generally banks fail to find any other buyer for attached properties.
According to bank sources every year in Delhi and NCR region more than 125 properties are attached. It is believed this figure might increase as the world is facing a massive market downturn.
Earlier three months ago outside a big kothi in West Patel Nagar a small board used to hang on the gate inviting attention of almost all the passers-by. On the board in bold letters following slogan was written, "This property is attached by the ... bank. Trespassers will be prosecuted."
With the introduction of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) banks have got plenty of powers to take physical possession of properties that are financed by them. In case the borrowers become regular offenders and do not pay EMIs to the bank, along with interest for six months in a row, then banks act speedily.
In case the borrower continues to be the defaulter bank serves a show cause notice to pay the money within 30 days. Sunder Khatri, legal expert on property matters said if the borrower doesn’t act within next 15 days, the bank seals the property. Khatri told after the fixed time banks inform the police station that a particular owner of the property has failed to pay the loan amount to the bank, therefore they will seal his property.
A senior official of SBI told that when bank officials seal any property, they make sure that the local police officials are also present there. Although due to courtesy of securitization acts, banks are able to attach properties in certain circumstances, but the problem starts when banks try to dispose of the property in order to recover their money with interest.
According to VK Suri, an expert on banking affairs as banks have to sell the attached properties and the payment is to done in white money, more often than not, buyers evade buying such properties. More over banks accept payment only through a cheque, thus the new buyer has to pay a huge stamp duty. This creates a big difficulty for the new buyer.
Sunil Jindal, director of SVP group, says that in our country there is no controller for the realty sector so the issue of black money in this business cannot be settled and solved. Jindal added that though everybody knows that black money has a significant role in realty business, till date the government has not taken any corrective measures. In case the government takes some steps to settle the issue of black money, banks will start getting buyers for the attached properties.
A banker acknowledged due to the white money payment provision, people do not take interest in buying attached properties. Suri said therefore banks are left with very few options to deal with this situation, he added, "Attached properties only add to their growing list of non-performing assets."
Therefore, public sector companies buy the attached properties. As the companies prefer to make payments through cheques thus, they buy these properties. But generally banks fail to find any other buyer for attached properties.
Tuesday, May 5, 2009
PSU banks restructuring loan slabs will offer cheaper home loans
The public sector banks (PSU) are restructuring their loan slabs in order to extend the cap to the consumers. Currently PSUs on loans up to Rs 20 lakh are offering a special rate of 9.25% for the first five years, under a special scheme open till June 30, 2009.
But now the state-run banks will offer 9.25% or less interest rate for the first five years on home loans up to Rs 30 lakh aiming to stimulate housing demand.
Executive informed following this bank are working out to extend the cap for availing of the special offer to Rs 30 lakh through restructured loan slabs and keep the offer open for a longer period.
For instance Corporation Bank has indicated that it will replace two concession slabs of up to Rs 5 lakh and Rs 5-20 lakh with a new slab of up to Rs 30 lakh.
“We are working on restructuring of slabs for home loans to bring down the lowest slab to Rs 30 lakh. We find that 75 % of the demand for home loans was in this segment,” the bank’s chairman and managing director JM Garg informed.
He said the rate of interest for the first five years will have a ceiling set at 9.25% or lower. Mr Garg told, “There is further room for interest rate cuts and our next asset liability committee is to take a call”.
IDBI Bank chief financial officer RK Bansal also confirmed that the bank is having final round of discussions on restructuring of the slabs, whereas other public sector banks such as Canara Bank have already begin the exercise.
It is expected the steps taken by the state-run banks will help in stimulating demand for new homes, which cratered since September last. Indeed, the December quarter saw insignificant growth in housing loan off as compared to the previous quarter.
However the demand for lower-priced houses showed improvement in the March quarter, with developers reducing prices and banks launching special schemes.
In metropolitan cities as well as tier-I and tier-II cities banks witnessed a surge in
demand for sub-Rs 30 lakh home loans.
Kotak Mahindra executive vice-president Kamlesh Rao pointed out, “While home loans in the sub-30 lakh category industry is seeing a higher growth of around 10-15%, the Rs 30 lakh plus category is showing a growth of 5-10%.”
Currently, state-run banks are charging 9.75-10% on loans of Rs 30 lakh.
After restructuring of loan slab monthly payment on a 20-year Rs 30 lakh loan will drop roughly Rs 500 for every 25 basis cut in interest rates.
Thus, a rate of 9.25% or lower could leave Rs 1,500 or more will leave more money in the hands of the buyer every month.
According to the special IBA (Indian banking Association) package open till June 30, housing loans of up to Rs 5 lakh draw a maximum interest rate of 8.5% in the first one year, while loans between Rs 5 lakh and Rs 20 lakh attract 9.25% for the first five years.
But now the state-run banks will offer 9.25% or less interest rate for the first five years on home loans up to Rs 30 lakh aiming to stimulate housing demand.
Executive informed following this bank are working out to extend the cap for availing of the special offer to Rs 30 lakh through restructured loan slabs and keep the offer open for a longer period.
For instance Corporation Bank has indicated that it will replace two concession slabs of up to Rs 5 lakh and Rs 5-20 lakh with a new slab of up to Rs 30 lakh.
“We are working on restructuring of slabs for home loans to bring down the lowest slab to Rs 30 lakh. We find that 75 % of the demand for home loans was in this segment,” the bank’s chairman and managing director JM Garg informed.
He said the rate of interest for the first five years will have a ceiling set at 9.25% or lower. Mr Garg told, “There is further room for interest rate cuts and our next asset liability committee is to take a call”.
IDBI Bank chief financial officer RK Bansal also confirmed that the bank is having final round of discussions on restructuring of the slabs, whereas other public sector banks such as Canara Bank have already begin the exercise.
It is expected the steps taken by the state-run banks will help in stimulating demand for new homes, which cratered since September last. Indeed, the December quarter saw insignificant growth in housing loan off as compared to the previous quarter.
However the demand for lower-priced houses showed improvement in the March quarter, with developers reducing prices and banks launching special schemes.
In metropolitan cities as well as tier-I and tier-II cities banks witnessed a surge in
demand for sub-Rs 30 lakh home loans.
Kotak Mahindra executive vice-president Kamlesh Rao pointed out, “While home loans in the sub-30 lakh category industry is seeing a higher growth of around 10-15%, the Rs 30 lakh plus category is showing a growth of 5-10%.”
Currently, state-run banks are charging 9.75-10% on loans of Rs 30 lakh.
After restructuring of loan slab monthly payment on a 20-year Rs 30 lakh loan will drop roughly Rs 500 for every 25 basis cut in interest rates.
Thus, a rate of 9.25% or lower could leave Rs 1,500 or more will leave more money in the hands of the buyer every month.
According to the special IBA (Indian banking Association) package open till June 30, housing loans of up to Rs 5 lakh draw a maximum interest rate of 8.5% in the first one year, while loans between Rs 5 lakh and Rs 20 lakh attract 9.25% for the first five years.
Wednesday, April 29, 2009
Indian housing sector witness growth by 12-15%
In the past few months the banks and the housing finance companies have been reducing interest rate on house loans. The effect of the cuts is now visible as the Indian housing sector has started showing increase in growth with a marked increase in the number of transactions for the last quarter of fiscal 2009.
As per information by global real estate consultancy Jones Lang LaSalle Meghraj (JLLM) by the end of March 31 there has been increase in the number of residential transactions by 12-15%. Leading realty players confirmed to Sunday ET there has been certainly increase in demand in the last couple of months, especially in March.
Rajeev Talwar, group executive director, DLF told, DLF, India’s largest realty player, has been able to sell all 1,400 apartments in its upcoming project in West Delhi within 24 hours at a discounted price.
Unitech company spokesperson told that, Unitech had launched two of its affordable projects last month in Delhi NCR and Chennai, too has witnessed an enthusiastic response from buyers. The developer managed to sell off 750 apartments in Uniworld Garden II in 45 days of its launch. Unitech official also claimed there another project, Ananda, launched in Chennai and priced at Rs 20 lakh onwards was also able to sell off 500 apartments in 10 days.
As per information provided by Niranjan Hiranandani, MD, Hiranandani Developers in Mumbai, in last 40 days the company has been able to sell more than 2,500 apartments.
Banks too have confirmed the increase in home loan takers. Leading banks informed Sunday ET spokesperson that business home loan segment has witnessed an estimated growth of 10-15% in Q4 against the previous quarter.
Kamlesh Rao, executive VP, Kotak Mahindra Bank pointed out, “In the sub-30 lakh category, the industry is seeing a higher growth of around 10-15%. However, we are major players in the Rs 30 lakh and above category of home loans, wherein a growth of around 5-10% has been observed.”
An anonymous senior official from IDBI Bank confirmed the trend.
As per information by global real estate consultancy Jones Lang LaSalle Meghraj (JLLM) by the end of March 31 there has been increase in the number of residential transactions by 12-15%. Leading realty players confirmed to Sunday ET there has been certainly increase in demand in the last couple of months, especially in March.
Rajeev Talwar, group executive director, DLF told, DLF, India’s largest realty player, has been able to sell all 1,400 apartments in its upcoming project in West Delhi within 24 hours at a discounted price.
Unitech company spokesperson told that, Unitech had launched two of its affordable projects last month in Delhi NCR and Chennai, too has witnessed an enthusiastic response from buyers. The developer managed to sell off 750 apartments in Uniworld Garden II in 45 days of its launch. Unitech official also claimed there another project, Ananda, launched in Chennai and priced at Rs 20 lakh onwards was also able to sell off 500 apartments in 10 days.
As per information provided by Niranjan Hiranandani, MD, Hiranandani Developers in Mumbai, in last 40 days the company has been able to sell more than 2,500 apartments.
Banks too have confirmed the increase in home loan takers. Leading banks informed Sunday ET spokesperson that business home loan segment has witnessed an estimated growth of 10-15% in Q4 against the previous quarter.
Kamlesh Rao, executive VP, Kotak Mahindra Bank pointed out, “In the sub-30 lakh category, the industry is seeing a higher growth of around 10-15%. However, we are major players in the Rs 30 lakh and above category of home loans, wherein a growth of around 5-10% has been observed.”
An anonymous senior official from IDBI Bank confirmed the trend.
Friday, March 6, 2009
Home loan scheme unable to attract borrowers
It has been two months the public sector banks (PSBs) have reduced interest rates of home loans up to Rs 20 lakh, but according to records of PSBs only 28,000 proposals have been cleared and around Rs 1,550 crore have been distributed under the special scheme announced by the banks.
According to data compiled by industry bodies and the government Punjab National Bank (PNB) India’s second-largest public sector bank has cleared only 35 loan proposals and has distributed Rs 1.70 crore under the scheme. While the State Bank of India (SBI) country’s largest lender has approved around 6,500 applications.
A special loan package pushed by the government to stimulate growth in real estate public sector banks announced freeze on interest rates on home loans up to Rs 5 lakh at 8.5 per cent for five years. Therefore for loans between Rs 5 lakh and Rs 20 lakh, the rate was freeze at 9.25 per cent. SBI moved ahead and reduced the rate further to 8 per cent for a year and others such as Central Bank of India followed on the line.
In addition borrowers can take loan of up to Rs 5 lakh by paying 10 per cent upfront and in case of home loans of Rs 5-20 lakh, and the upfront payment has been fixed at 15 per cent compared to 25-30 per cent for other loans.
Bankers pointed out that buyers are expecting real estate prices to fall further, thus many are deferring a purchase for the moment.
"Real estate firms are grappling with a sharp drop in demand and mounting debt repayment. They will have to reduce prices substantially to clear inventory. Once that happens, we may see some improvement in response," said a senior public sector bank executive.
Banker added although prices have come down by around 30 per cent in certain pockets, but buyers are more worried about the equated monthly installments (EMIs), which will drop down only when the real estate prices dropped more. "Interest rate is a smaller worry," said a bank executive. "With the economic slowdown, many buyers prefer to stick to rented accommodation instead of purchasing their own apartment," another executive said.
Moreover, many banks are not interested in giving out home loans under this scheme as they are worried over their cost of funds. According to analyst at a Mumbai-based brokerage funds being raised at higher costs, public sector banks will feel pressure on their spreads if they hawked the special scheme too aggressively.
Besides the cost of funds, banks also have to accept the cost of providing life insurance cover to the borrowers. Moreover they the banks cannot charge any processing fee, which adds to the overall cost.
Bankers added that even for normal home loans, demand has slowed down in a hope of further reduction in real estate prices. As per the data provided by the Reserve Bank of India, the growth in housing loans has dropped to 8.8 per cent for the year up to December 19, 2008, in comparison to a year-on-year rise of 14.8 per cent in the period up to December 21, 2007. In the year up to December 19, 2008 banks have been able to sanction home loans of Rs 21,989 crore, as against Rs 31,780 crore in 12 months ended December 17, 2007.
Wednesday, February 18, 2009
LIC Housing Finance cuts lending rates for new borrowers by 100 bps
After banks now the housing finance are reducing lending rates for the borrowers. LIC Housing Finance (LICHF) has announced a cut in lending rates for new borrowers by 100 basis points across various loan categories. After this cut home loans up to Rs 30 lakh, irrespective of the tenure, will get cheaper by 100 bps at 8.75 per cent, whereas for loans above Rs 30 lakh, the rates have reduced by 9.75 per cent as against 10.75 per cent earlier. The new rates have come into effect from February 1.
LIC Housing Director & CEO R R Nair remarked, “Earlier, similar loans with tenure up to five years charged 9.25 per cent and loans with tenure between five and 20 years attracted 9.75 per cent. Now we have decided to aggregate the two schemes and charge same interest rate”. Around 80 per cent of LICHF’s loans come under the Rs 30-lakh category, with an average loan size at Rs 16 lakh.
Meanwhile after the meeting with acting Finance Minister Pranab Mukherjee, many public sector bank chiefs, including UCO Bank and Corporation Bank, had signaled a cut of 50-100 bps in lending rate.
State Bank of India has already announced 8% cut on home loans for a year, irrespective of tenure and amount.
The offer announced by the SBI does not provide any benefit to the existing borrowers but it will be reviewing the decision on April 1.
Nair said, “We have passed on the benefit of incremental reduction in costs to the new borrowers. We always take a quarterly review of the lending rates for the existing borrowers, as we take into account the average cost of funds which is next due in April”.
Earlier on January 1, the company had announced cut in lending rates for existing borrowers, which is at present in the range of 10.75-11.25 per cent, by 75 bps.
In December quarter, the firm attained a 26.70 per cent rise in net profit at Rs 134.33 crore and distributed Rs 1,944 crore. The firm’s total borrowing in 2008-09 fiscal year would go up to Rs 11,400 crore as compared to Rs 7,490 crore last year.
Nair added, “The repayment outgo has increased with rising costs, so our borrowings for FY09 have increased. We have already borrowed Rs 8,800 crore in FY09 and we would require another Rs 2,500 crore to support our annual disbursement target of Rs 10,000 crore.”
LIC Housing Director & CEO R R Nair remarked, “Earlier, similar loans with tenure up to five years charged 9.25 per cent and loans with tenure between five and 20 years attracted 9.75 per cent. Now we have decided to aggregate the two schemes and charge same interest rate”. Around 80 per cent of LICHF’s loans come under the Rs 30-lakh category, with an average loan size at Rs 16 lakh.
Meanwhile after the meeting with acting Finance Minister Pranab Mukherjee, many public sector bank chiefs, including UCO Bank and Corporation Bank, had signaled a cut of 50-100 bps in lending rate.
State Bank of India has already announced 8% cut on home loans for a year, irrespective of tenure and amount.
The offer announced by the SBI does not provide any benefit to the existing borrowers but it will be reviewing the decision on April 1.
Nair said, “We have passed on the benefit of incremental reduction in costs to the new borrowers. We always take a quarterly review of the lending rates for the existing borrowers, as we take into account the average cost of funds which is next due in April”.
Earlier on January 1, the company had announced cut in lending rates for existing borrowers, which is at present in the range of 10.75-11.25 per cent, by 75 bps.
In December quarter, the firm attained a 26.70 per cent rise in net profit at Rs 134.33 crore and distributed Rs 1,944 crore. The firm’s total borrowing in 2008-09 fiscal year would go up to Rs 11,400 crore as compared to Rs 7,490 crore last year.
Nair added, “The repayment outgo has increased with rising costs, so our borrowings for FY09 have increased. We have already borrowed Rs 8,800 crore in FY09 and we would require another Rs 2,500 crore to support our annual disbursement target of Rs 10,000 crore.”
Tuesday, February 17, 2009
Home loans still not within reach of borrowers
After the Reserve Bank of India and the government directed banks to cut down the lending interest rates, in spite of that people are facing problem in taking a home loan. The reason being banks are openly insisting that borrowers are required to contribute 20-30% of the value of the property, instead of 10-15% earlier.
Banks finance proportion has also come down from 85-90% of the property value to 70-80%, therefore borrowers (mainly the younger lot) are finding it difficult to go for a home loan.
Recently SBI has brought down its home loan rate to 8% and free zed for one year. Therefore the bank will lend only 80% of the value of house if the requirement is between Rs 20 lakh and Rs 75 lakh. In case the loan is more than Rs 75 lakh, the bank lends only 75% of the amount. In fact, Punjab National Bank (PNB) is lending 75% of the loan for a property of above Rs 20 lakh.
Other PSU banks like Union Bank and UCO Bank are also lending only up to 80% of the value of the house. On the other hand private sector banks like ICICI Bank are asking for 20-30% buyer's contribution while giving a home loan.
In metros like Mumbai, Delhi/NCR Bangalore the average price of a three-bed room apartment is around Rs 40 lakh. In other big cities like Kolkata, Chennai and Pune, it is around Rs 30 lakh. Hence the buyer's contribution to buy a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier. This is acting as a big restriction for a young buyer especially in the age group of 30-35 years.
But the bankers are not really bothered. UCO Bank executive Director TM Bhasin told as real estate price are coming down, banks have increased the buyer's contribution with a view that the market value of the property should not fall below the loan amount during the course of repayment. He pointed out if the bank gives 85% of the transaction and the market value of the house falls by 20% within six months, the loan amount will be more than the value of the property taken as security. In such conditions, the borrower can decide to walk off surrender the house to the bank and like this bank will be able to recover the money by selling the property. To avoid such conditions, the bank has increased the buyer's contribution.
This factor played a very big role in the current US crisis. The banks have given up to 90% of the value of the house. But when the market price fell below the outstanding loan amount, the borrower decided to surrender the house to banks, which in turn are finding it difficult to sell them to recover money.
Banks have also tightened the norms related to a loan. Previously, they used to allow an EMI of up to 50% of monthly income of the borrower. But now, this has been reduced to 40%, this has made difficult for the borrower.
Banks finance proportion has also come down from 85-90% of the property value to 70-80%, therefore borrowers (mainly the younger lot) are finding it difficult to go for a home loan.
Recently SBI has brought down its home loan rate to 8% and free zed for one year. Therefore the bank will lend only 80% of the value of house if the requirement is between Rs 20 lakh and Rs 75 lakh. In case the loan is more than Rs 75 lakh, the bank lends only 75% of the amount. In fact, Punjab National Bank (PNB) is lending 75% of the loan for a property of above Rs 20 lakh.
Other PSU banks like Union Bank and UCO Bank are also lending only up to 80% of the value of the house. On the other hand private sector banks like ICICI Bank are asking for 20-30% buyer's contribution while giving a home loan.
In metros like Mumbai, Delhi/NCR Bangalore the average price of a three-bed room apartment is around Rs 40 lakh. In other big cities like Kolkata, Chennai and Pune, it is around Rs 30 lakh. Hence the buyer's contribution to buy a house of Rs 40 lakh has increased to Rs 8-10 lakh, from Rs 4-5 lakh earlier. This is acting as a big restriction for a young buyer especially in the age group of 30-35 years.
But the bankers are not really bothered. UCO Bank executive Director TM Bhasin told as real estate price are coming down, banks have increased the buyer's contribution with a view that the market value of the property should not fall below the loan amount during the course of repayment. He pointed out if the bank gives 85% of the transaction and the market value of the house falls by 20% within six months, the loan amount will be more than the value of the property taken as security. In such conditions, the borrower can decide to walk off surrender the house to the bank and like this bank will be able to recover the money by selling the property. To avoid such conditions, the bank has increased the buyer's contribution.
This factor played a very big role in the current US crisis. The banks have given up to 90% of the value of the house. But when the market price fell below the outstanding loan amount, the borrower decided to surrender the house to banks, which in turn are finding it difficult to sell them to recover money.
Banks have also tightened the norms related to a loan. Previously, they used to allow an EMI of up to 50% of monthly income of the borrower. But now, this has been reduced to 40%, this has made difficult for the borrower.
Thursday, January 22, 2009
HDFC new home loan rates for limited period
On Friday HDFC leading mortgage lender posted new loan rates under which the loan amount up to Rs 30 lakh will carry interest of 9.75 per cent and above Rs 30 lakh will attract interest of 10.75 per cent per annum.
The rates have come into effect from Friday, and the offer is valid for limited period. In a statement released by HDFC stated the new offer will be applicable for new floating rate home loan customers.
On the other hand the bank reduced its deposit rates in the range of 0.50 per cent to 0.75 per cent.
Friday, January 16, 2009
HFCs set to slash rates on sub- Rs 20 lakh loans
New Year brings good news for new home loan borrowers. New home loan borrowers, with a loan size of less than Rs 20 lakh, will probably get cheaper loans from institutional lenders from January 1, 2009. The second-tier specialized housing finance companies (HFCs) following the footsteps of the leaders too, are introducing special home loan schemes for the sub-Rs 20 lakh loan category. With this large section of fresh home loan takers get benefited.
Second-step HFCs, which are planning to slash rates, include Dewan Housing Finance (DHFL), GIC Housing Finance (GICHF), DHFL Vysya Housing Finance, among others. They might reduce interest rates by 1-1.5 percentage points as compared to their existing rates for loans up to Rs 20 lakh.
These lenders also have plans to reduce rates for existing borrowers, although by a lesser extent. GICHF, with a home loan portfolio of Rs 2,800 crore, has decided to reduce interest rates by 1-1.5 percentage points for fresh borrowers. Therefore for loans below Rs 20 lakh, it will be charging 10.25% per annum for 5-15 years and 10.5% per annum for over 15 years.
On the other hand DHFL, with a home loan portfolio of around Rs 5,000 crore, is yet to finalize its plan. According to information received from the sources, it might offer special rates, too, for the both sub-Rs 20 lakh and sub-Rs 5 lakh loan categories. It is a subsidiary of DHFL Vysya Housing Finance, also plans to introduce special rates for new home loan takers.
These players have taken the indication from public sector banks and the market leader Housing Development Finance Corporation (HDFC). Following the government’s instruction, public sector banks have introduced a concession rate of 9.25% for home loans below Rs 20 lakh and 8.5% for loans less than Rs 5 lakh. HDFC the home loan leader has announced a floating interest rate of 10.25% for loans up to Rs 20 lakh and 11.25% for loans above Rs 20 lakh.
National Housing Bank (NHB), which offers refinance support to HFCs, has offered a special Rs 4,000-crore refinance facility at 8% annual rate. It is also offering a Rs 2,000-crore refinance support for loans against rural housing projects.
“As we will get refinance from NHB at easy terms, we have decided to pass on the benefit to new customers from January 1,” GICHF managing director M Sivaraman told ET. However Industry players are of view that NHB facility would be given only against fresh lending. So, the benefit of the soft rates will be limited to fresh loans. GICHF, for instance, will reduce its interest rates for existing customers by 0.25 percentage points.
According to DHFL Vysya Housing Finance managing director R Nambirajan, the company will be cutting its rates by 0.5 percentage points for existing borrowers across the range. “Besides offering the special refinance scheme, NHB has reduced its normal refinance rates too. Both the moves will help lowering interest rates,” he said.
While on Tuesday NHB CMD S Sridhar said, “As we have reduced rates, we also expect HFCs to reduce rates and pass on the benefits to end-customers.”
Second-step HFCs, which are planning to slash rates, include Dewan Housing Finance (DHFL), GIC Housing Finance (GICHF), DHFL Vysya Housing Finance, among others. They might reduce interest rates by 1-1.5 percentage points as compared to their existing rates for loans up to Rs 20 lakh.
These lenders also have plans to reduce rates for existing borrowers, although by a lesser extent. GICHF, with a home loan portfolio of Rs 2,800 crore, has decided to reduce interest rates by 1-1.5 percentage points for fresh borrowers. Therefore for loans below Rs 20 lakh, it will be charging 10.25% per annum for 5-15 years and 10.5% per annum for over 15 years.
On the other hand DHFL, with a home loan portfolio of around Rs 5,000 crore, is yet to finalize its plan. According to information received from the sources, it might offer special rates, too, for the both sub-Rs 20 lakh and sub-Rs 5 lakh loan categories. It is a subsidiary of DHFL Vysya Housing Finance, also plans to introduce special rates for new home loan takers.
These players have taken the indication from public sector banks and the market leader Housing Development Finance Corporation (HDFC). Following the government’s instruction, public sector banks have introduced a concession rate of 9.25% for home loans below Rs 20 lakh and 8.5% for loans less than Rs 5 lakh. HDFC the home loan leader has announced a floating interest rate of 10.25% for loans up to Rs 20 lakh and 11.25% for loans above Rs 20 lakh.
National Housing Bank (NHB), which offers refinance support to HFCs, has offered a special Rs 4,000-crore refinance facility at 8% annual rate. It is also offering a Rs 2,000-crore refinance support for loans against rural housing projects.
“As we will get refinance from NHB at easy terms, we have decided to pass on the benefit to new customers from January 1,” GICHF managing director M Sivaraman told ET. However Industry players are of view that NHB facility would be given only against fresh lending. So, the benefit of the soft rates will be limited to fresh loans. GICHF, for instance, will reduce its interest rates for existing customers by 0.25 percentage points.
According to DHFL Vysya Housing Finance managing director R Nambirajan, the company will be cutting its rates by 0.5 percentage points for existing borrowers across the range. “Besides offering the special refinance scheme, NHB has reduced its normal refinance rates too. Both the moves will help lowering interest rates,” he said.
While on Tuesday NHB CMD S Sridhar said, “As we have reduced rates, we also expect HFCs to reduce rates and pass on the benefits to end-customers.”
Monday, January 5, 2009
Govt banks to offer up to 9.25% on home loans
After RBI efforts to bring down the inflation by cutting the repo and CRR the state-run banks are willing to lower interest rates on some loans to home buyers and small businesses as part of a government initiative to boost the demand in mid of a global crisis but analysts are of view that high real estate prices will reduce the demand.
O.P. Bhatt, chairman of State Bank of India, India's biggest bank informed government banks have agreed to offer interest rates of 8.5 percent on new home loans of up to 500,000 rupees and 9.25 percent for loans between 500,000 to 2 million rupees. "The thrust is economic stimulus," Bhatt said at a conference. "The concern is to stimulate (the) economy, to create demand."
He anticipated the home loan package can result in the disbursement of 150 billion to 200 billion rupees worth of loans by June 30, 2009, by the end of the scheme.
"This will not have much effect on margins," S.K. Goel, chairman and managing director of UCO Bank, said. "The revenue that the bank will get will be affected by 2-3 basis points."
Bhatt further explained that the interest rates will be frozen for five years, after which the borrowers can opt for fixed or floating rates.
Bhatt added the banks will require a margin of 10 percent for loans of up to 500,000 rupees whereas for loans between 500,000 to 2 million rupees it will need a 20-percent margin.
A banker pointed out till now the banks have been offering these loans at interest rates ranging from 10-11.25 percent with margins sometimes as high as 25 percent for both categories.
Bhatt further added now these home loans will have no pre-payment or processing charges and the borrower will get the benefit of a free life insurance cover for the entire loan outstanding.
Official maintained that home loans below 2 million rupees constitute more than four-fifths of the mortgage portfolio of state run banks.
Bhatt said in a correlated move to boost economic activity, the banks are also planning to cut rates on existing and fresh loans to micro industries by 100 basis points effective immediately.
He added that small and medium enterprises will have to pay 50 basis points less on loans up to 100 million rupees.
It is expected that these moves by the state-run banks will follow a push of measures by
Although analysts have welcomed the rate cuts but are sounding caution about the still-high real estate prices.
"Before lending starts, property prices should come down and cost of funds of the banks should come down. It will take 3-6 months for the cost of funds to come down," said Vipul Shah, an analyst at KR Choksey Shares and Securities.
Over the past five year the real estate industry was booming but from few years the real estate industry has been battling unenthusiastic sales, with purchases falling by a fifth in the first half of the year, as inflated property prices and decade-high interest rates brought an end.
"It may not be sufficient considering the overall economic downturn and high realty prices," said Hitesh Kuvelkar, associate director, research, at First Global Securities.
Though most real estate developers have cheered the move and hoped demand will pick up on softer interest rates and property prices.
While expressing his views Sanjay Chandra, managing director of Unitech Ltd said, "This will encourage a lot of people to buy and the next few months will be good for the sector".
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